Rising US bond yields trigger global flight from stocks

MUMBAI: Higher bond yields in the US came back to haunt stock investors on Friday after a pause the previous day. Erasing all gains made on Thursday, Indian benchmarks fell 1.2 per cent, tracking the selloff in global markets to post their biggest weekly loss since August 2017. Foreign investors dumped shares worth Rs 1,351 crore on Friday, extending their selling spree to the fifth straight day. The BSE Smallcap index closed higher while the midcap index ended slightly lower on buying by local investors.

The Sensex declined 407.40 points, or 1.18 per cent, to close at 34,005.76 points. The Nifty fell 121.90 points, or 1.15 per cent, from the previous close to end at 10,454.95. For the week, Sensex ended down 3.03 per cent while Nifty fell 2.84 per cent. It was also the second consecutive week of declines for the indices amid growing global concern over rising US bond yields. The midcap index fell 0.1 per cent and the smallcap index rose 0.2 per cent. Losers outnumbered gainers 1403:1369 on the BSE.

Experts feel the correction may not be over yet. "Although there has been a 6-7 per cent correction so far, the Sensex is still around 15 per cent overvalued. Small and midcaps are 30 per cent overvalued. When that correction will happen, and whether that correction will happen at all remains to be seen," said Saurabh Mukherjea, CEO, Ambit Capital.

Sensex Down About 2,400 Points from Peak

At the time of going to print, US stocks were in the red with the Dow Jones Industrial Average down about 390 points. The US 10-year treasury yield stood at 2.84 per cent. On Thursday, yields rose to a near-four-year high of 2.88 per cent, causing a selloff on Wall Street.

At home, the Sensex has fallen roughly 2,400 points, or 6.7 per cent, from its record high of 36,443.98 points that it reached on January 29. Nifty has fallen 6.4 per cent from its peak of 11,171.55 hit on January 29.

Andrew Holland, chief executive officer at Avendus Capital Alternate Strategies, said volatility is likely to be around for some time. "We are not back to normal. There will be more pain in mid- and smallcaps as valuations are still high generally," he said.

The BSE Midcap index ended down 0.09 per cent at 16,634.91 on Friday, off its day's low of 1.8 per cent. The BSE Smallcap index fell 2 per cent during the day but recovered to end up 0.23 per cent at 18,172.98. Domestic institutional investors (DIIs) bought shares worth Rs 588.42 crore, provisional data showed. Foreign portfolio investors (FPIs) have sold shares worth Rs 4,900 crore so far in February while DIIs have bought shares worth Rs 5,400 crore.

YES Bank led the losses on the Sensex, ending down 2.84 per cent at Rs 325.55. ICICI Bank, HDFC, Infosys, Axis Bank and Bharti Airtel ended down 1.8-2.3 per cent.

Some money managers said the fall from here on will be more gradual. "The next 5-6 per cent correction will happen gradually," said Piyush Garg, chief investment officer at ICICI Securities. Gopal Agrawal, CIO at Tata Mutual Fund, said the correction is not a reversal in market trend.

"This is just a part of a natural correction. In the past one year there has been no major correction," said Agrawal. "Whenever growth comes back, it stokes a little bit of inflation. It is not a reversal in trend (in equities)."